CMS Reverses Position on Proposed Medicare Advantage Cuts

Written by Dwane McFerrin—April 3, 2013

Since CMS published its proposed reductions in Medicare Advantage reimbursements to carriers February 15th, intense lobbying took place and the stability of the marketplace appeared in jeopardy. Carriers were estimating the impact as much as $60 - $90 per member per month on product pricing, meaning plan designs for 2014 would need to significantly reduce costs to make up for the shortfall. Where would have that come from? Since healthcare costs are the biggest component, that’s where the biggest savings would have been needed and the Accountable Care Organization model and/or network partnerships/acquisitions are important. In addition, carriers are riveted on achieving four quality stars ratings or higher to maximize reimbursement rates. Some agents feared that the carriers would consider reductions in compensation too.

The industry breathed a big sigh of relief Monday when CMS announced it was reversing course and instead of a 2.2% reimbursement cut, it was actually increasing reimbursement rates for Medicare Advantage plans by 3.3%! This should stabilize the market, allow carriers to expand service areas and provide more client choices in premiums, co-pays and benefits. After all, competition is better for the industry than having only a few carriers remaining in each market. The carrier efforts to partner or acquire provider networks continue as well as the focus on achieving higher quality stars. This is an important step at a time when Medicare Advantage is facing significant challenges.

In addition, CMS ruled that for the first time, Part D benefit parameters would go down. For example, the 2014 Part D deductible will be $310, $15 less than 2013. The Initial Coverage Limit will also be lowered from $2,970 to $2,850 and the out-of-pocket threshold will drop from $4,750 in 2013 to $4,550 in 2014. These changes reduce the size of the coverage gap from $1,780 to $1,700. This is good news for beneficiaries in terms of Part D benefits. We’ll have to wait and see the impact on premiums.